Business Thought

Can shifting winds change the long-standing standard for business philanthropy?

Andrew Carnegie is known for being both a monopolist and a philanthropist. He was a steel-industry giant who wrote that the rich have “a moral obligation to distribute [their money] in ways that promote the welfare and happiness of the common man.” At the end of his life, he gave away billions of dollars worth of money to build libraries, donate organs to churches, endow research organizations, and build Carnegie Hall. 

His contributions are admirable and many have been long lasting. Yet, in a simple criticism, one of his overworked and underpaid workers quipped, “After working 12 hours, how can a man go to a library?” 

Carnegie, like many other wealthy entrepreneurs, followed a two-stage model for achieving good in the world through business: first, gain wealth; second, use that wealth to improve the general welfare of society. The paradox of this model is that many entrepreneurs miss opportunities to achieve good by waiting until they have become wealthy to make donations, rather than embedding pathways for generating social good into their business.

Carnegie’s model of first generating wealth and then donating to social causes has carried on as a dominant strategy for creating social value through business and was reinforced by a 1970 opinion piece in the New York Times Magazine by economist Milton Friedman. He famously wrote: “There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.”

Milton Friedman’s theory of shareholder primacy and the drive to maximize profit without considering social welfare has seeped into the norms of today’s business world. Yet, the assumptions upon which his theory is founded, the implications of it in practice, are being questioned and tested in today’s society.

For example, in 2018, when Amazon founder Jeff Bezos tried to follow this time-tested pathway to social good by launching his own philanthropic initiative, the public lambasted his efforts. “If Jeff Bezos wants to help low-income people,” asked The Guardian’s Marina Hyde, “why not just pay them better?” Hyde’s op-ed was one of dozens on the subject of Bezos and other corporate and philanthropic efforts that miss the mark.

To many consumers and employees, this model of postponing social good feels somewhere between confusing, unsettling, and wrong. What good is a philanthropist that fails to adequately care for his or her employees along the way? Why wait?

After a many-years build up, the winds are shifting. Both consumers and employees – key business stakeholders – have realized the power the business has to both generate and destroy social value – not after wealth has been created, but now. 

These stakeholders are impatiently expecting business to change and adapt, and in order to stay relevant and competitive, businesses must respond accordingly. 

The brilliance of this shift is the recognition that businesses can create social value through more than just corporate philanthropy and give-back programs – they can embed it into every element and practice of their business from employee pay and benefits to supply chain management and marketing. 

There is no doubt that Andrew Carnegie’s social impact extends well beyond his philanthropic donations. His innovation in the steel industry literally revolutionized travel and transportation of goods as it paved the way for cross-national railways, as one example. Yet, in his effort to prioritize profit, he missed the mark of creating added social value by simply paying his employees a fair wage – riddling his successes with union strikes and brutal responses.

In light of the current shift in conversation, businesses have never been better positioned to assertively center their focus on social value creation as part of their core mission and operations. 

(Are you listening, Mr. Bezos?)

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